US consumer prices slipped 0.1 per cent in May

U.S. retail sales in May recorded their biggest drop in 16 months and consumer prices unexpectedly fell, suggesting a softening in domestic demand that could limit the Federal Reserve's ability to continue raising interest rates this year.

USA consumer prices are rising at the slowest pace in half a year, a complication for the Federal Reserve as it balances soft inflation readings against signs the labor market is at or near full employment.

Consumer Price Index inflation unexpectedly hit 2.9 per cent last month, which was the highest level since June 2013 when it last stood at that level.

The rise in the cost of living has been driven by an increase in the price of recreational and cultural goods and services - including holidays overseas - which overall rose 0.9 per cent between April and May compared with a fall of 0.4 per cent a year earlier.

Britain's inflation continued its recent upward trajectory, reaching 2.9 percent in May, according to figures released by the Office of National Statistics Tuesday.

This means the United Kingdom labour force is struggling to earn enough to keep up with rising inflation which jumped to a new four-year high of 2.9% in May.

"In other words, that the wages people are getting are not going to be sufficient to compensate for the rises in consumer prices, prices in the shop".

Pay growth has slowed sharply to a weaker than expected 1.7%, tightening the squeeze on households as inflation turns higher, official figures show.

The Bank of England had predicted that inflation would not rise to 2.8 per cent until later this year, peaking at three per cent next year.

The fall was greater when measured over a three-month period, confirming that wages are falling behind the 2.9% inflation rate. March was revised higher to a reading of 0.2%.

The data "won't stop the Fed hiking today, but if this trend continues through the summer then the next hike, which we have been expecting in September, will be delayed", Ian Shepherdson of Pantheon Macroeconomics said in a note to clients. Moreover, there are predictions of a normal monsoon, and goods and services tax (GST) rates are unlikely to be inflationary, the report said, backing up.

Retail sales rose 3.8 percent in May on a year-on-year basis.

"As yet it seems there is little evidence of this type of "wage-price spiral", which should give the Bank enough latitude to look through higher inflation and hold rates at 0.25% for now".

Unemployment is at its lowest level for more than a decade after falling by 50,000 in the quarter to April to 1.53m.

Excluding the food and fuel categories, which can see big swings from month to month, CPI rose 0.1 per cent.